Ending Our Immoral Tax Code

Lately, there have been some proposals in the political mainstream for a flat tax system. Such proposals are very much worth considering. The current tax code, with its system of deductions and penalties is grossly immoral – the government has no right to reward or penalize our non-criminal behaviors.

What few people consider about a system based on deductions is the flip side of the coin. For every behavior that the government sees fit to “encourage” with deductions, it is, by definition, penalizing other behaviors which do not carry deductions. By becoming involved in the topic at all, a Pandora’s Box is opened, from which the government becomes the moral police of the land, issuing citations and boons to all for practicing “correct” and “incorrect” behaviors.

That alone should merit the ire of every red-blooded American. Ours is supposed to be the land of the free, not the land of Children and Subjects, nannied by the all-knowing State, which has both the wisdom and moral authority to tell us what is best for us. But, it gets worse.

A system of deductions is infinitely corrupting, creating massive lobby systems and ultimately providing the most rewards to those people who are best at gaming the system, especially the ones that can do so in dishonest ways. (This is what is generally meant by the popular term, “loopholes”) Furthermore, this system causes conflicts that are unnecessary to a free society, as people are pitted against each other in never-ending debates about which behaviors to reward and punish. People eternally complain about the problem of “corruption” caused by lobbyists, but few seem to recognize that the root of this problem is a government which is empowered to grant favors (i.e. deductions) in the first place. If the government did not have the power to favor one company over another with deductions, nobody would have any reason to hire lobbyists to curry such favors. (There is also an important lesson to be learned about regulation, here…)

What’s more, our tax code causes compound problems and countless unintended consequences. To take one example, by allowing health insurance to be deducted through employers, we’ve made it impossible to get affordable health insurance without working for someone. This has caused distortions in both the job market and the health care market, which have, themselves, lead to further government “solutions,” which have then caused ever-multiplying problems of their own.

And let us not forget the nightmare our system makes for us every April, when we have to file tax returns. Not only is this a headache for individual filers, it is a massive expense as both business and the IRS have to employ legions of accountants to manage, enforce, or comply with our bloated tax code. This money serves no productive purpose whatsoever; it is simply millions of dollars gone from our economy.

Some have argued – convincingly, I will concede – that any flat tax system implementation would likely be exploited to serve as a tax increase. But even supposing this were true, I believe that the moral victory of giving the government even one less vector to act as our Master is well worth any such consequence. And the economic benefits of removing all of the anti-market behaviors encouraged by the tax code, as well as removing many costs of compliance, may serve to offset some of the burden a tax raise would impose.

Besides, I think that we are well past the point of avoiding tax increases. The debt crisis may be mathematically impossible to solve without massive spending cuts, but I don’t believe it is realistic to say that, in the current political climate, tax increases of some kind aren’t anything other than inevitable. Consider, also, the fact that our government has shown that it is willing to engage in near-Weimar-levels of inflation. There are worse things than a tax increase.

Indeed, as an argument against a flat tax, the threat of a tax increase loses much of its potency in the dire context of today’s politics.

Note that a fixed dollar amount would almost certainly lead to further exceptions and deductions, as I don’t imagine it is even mathematically possible for the lower 40% to pay an equal fixed amount of our current government’s budget. This would almost certainly lead to debates about how to give the poorest some kind of exception, when the whole point of this change would be to abolish all exceptions and deductions.

I’ve long been in favour of abolishing income tax entirely (ALL taxes and excises etc, in fact) and replacing them with poll taxes. The idea is that, within each jurisdiction, citizens who want to vote must pay the same one fixed amount to be eligible. There should be no deductions, no progressivism, and the amount too low to fund government by itself. The amount MUST be equal, matching the equality of say embodied by the vote that a payer becomes empowered to cast. Thus, no pay means no say and equal pay means equal say. Note also that the non-payment of the tax should only mean the non-eligibility to vote. All other civil rights – not to mention individual rights in general – are still the full obligation of the relevant government to uphold.

The last time I did some rough calculations, the amounts I came up with happened serrendiptitiously to work out at approximately a single ounce of gold per year for national and a quarter-ounce for state+local, both of which coin sizes are of historical and moral significance in the US and elsewhere. If I redid the calculations the amounts might come out even less than that today. Given those kinds of amounts, a call for a departure from equality of amount payable could then not be seen other than what progressivism itself means: using the more able as milking cows who get nothing – indeed, are expressly denied anything – extra in return. No wonder the Left hates them so violently.

I do know that poll taxes also have a very bad history in the US South as a means of disenfranchising black voters, but the principle is morally sound and rightful amounts are not an unreasonable burden. Were government doing only what they should, then as shown the amounts would be low enough such that anyone who was serious about politics and who had the time to inform themselves to the minimum degree necessary to be rational in casting a vote would have little trouble in finding that kind of money.

While I agree with much that is said here, I think that given the current situation we should be in favor of deductions. What is a deduction ultimately except a way for the taxpayer to keep more of his money?

If we were to end the interest and mortgage deduction (which I concede to have some bad consequences) it would not be followed by a corresponding tax rate decrease.

I personally don’t have a problem with a graduated income tax. Wouldn’t a graduated 1-10% tax be better than a flat 15% tax?

And since no one is suggestion that a homeless guy who panhandles on the street and collects $2000 a year should be taxed, then he is paying 0%. A graduated tax is inevitable.

Parille:
“And since no one is suggestion that a homeless guy who panhandles on the street and collects $2000 a year should be taxed, then he is paying 0%. A graduated tax is inevitable.”

The terms flat and progressive (or graduated) refer to the tax rates on the tax base, typically one’s income above any personal exemptions. (Flat tax proposals typically include an exemption just as the modern tax system does–Perry’s proposal includes an exemption based on family size, for example.) Parille is confusing tax base and a person’s entire income here.

“What is a deduction ultimately except a way for the taxpayer to keep more of his money?”

Well, I did address this in the article:

“For every behavior that the government sees fit to “encourage” with deductions, it is, by definition, penalizing other behaviors which do not carry deductions. By becoming involved in the topic at all, a Pandora’s Box is opened, from which the government becomes the moral police of the land, issuing citations and boons to all for practicing “correct” and “incorrect” behaviors.”

Whatever small tokens one might get back from deductions, it is not worth the principle of the government acting as a moral police. It is a massive insult to the rights and dignity of free men that the government is an arbiter of non-criminal behaviors, deciding what we “should” or “shouldn’t” do.

Actually, the next several paragraphs address that question, as well. A deduction is ultimately a panoply of Bad Things, and emphatically not simply a way to keep more money.

Actually, it’s pretty hard to actually read and substantially agree with my article and still come away with a question like that, since answering it in a negative way is pretty much my central point!

Neil again:

“I personally don’t have a problem with a graduated income tax. Wouldn’t a graduated 1-10% tax be better than a flat 15% tax?”

Before answering his question, I have to correct this – it doesn’t mathematically add up. Any graduated system’s range would have to go higher than an equivalent flat tax system. Let us take a 15% flat tax and convert it to a graduated system. Since some would pay less than 15%, others would mathematically have to pay more. So a 1-10% system could not by definition substitute for a 15% system. It would have to be a 5-25% system, or somesuch.

In stark, pragmatist, terms, his question becomes, “Wouldn’t a graduated 5-25% system be better than a flat 15% tax?” Well, no: not for those paying 16-25%.

But, this question again misses the point of my article. Stark Pragmatism like that is a good part of what got us into this mess. It is both evil and dangerous to enshrine the principles of egalitarianism and class warfare into law. By doing so, you corrupt and oppose the underlying principle of America – and empower the enemies of that principle, such as the Marxist types in OWS. In essence you say, “America is no longer about life, liberty, and the pursuit of happiness – it is about life, soaking the rich, and the pursuit of happiness!” That our progressive tax system has existed so long has added that much more power to the egalitarian Left. Witness their statement: “They want to repeal the 20th century!”

Consider also, the other consequences of such a system, especially in the context of a welfare state. Large swaths of the country do not pay for the consequences of government spending, yet they have just the same right to vote for more of it as anyone else. They have little to no incentive to vote for anyone that advocates any form fiscal restraint.

None, except the long range principles, such as the fact that the whole system is threatened with collapse. Ah, but to acknowledge such a fact would require a mentality other than unprincipled, short-range Pragmatism, which is the only mentality many of them seem to possess.

Did you notice that the same short-range, unprincipled Pragmatism that Neil says means we should want a graduated system is also responsible for destroying the country in other ways?

Ultimately, of course, the only way to correct this danger is to outlaw the welfare state, since even if they did pay a share, many would just get it back in welfare. But it would make a difference in the meantime.

“And since no one is suggestion that a homeless guy who panhandles on the street and collects $2000 a year should be taxed, then he is paying 0%. A graduated tax is inevitable.”

Aye, I will grant that it isn’t worth it to try to collect taxes from panhandlers and the like who make less than $2000 a year. This does not, however, mean that anything goes, and we may as well jump off the cliff and have a graduated system.

Bear in mind that my proposal is for the context of our present society, as a measure of rolling back the leviathan state by removing one of the venues it has to act as moral police of our behavior.

Ultimately, a flat tax system like this would have to be rolled back as well in favor of removing involuntary taxes altogether and instead having fees such as contract fees, poll charges like the one John McVey proposed, and other things of that nature. But this would only be after massive reforms radically change the size and the very nature of our government to make such a system possible.

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